The level of Scottish businesses showing signs of critical financial distress in the third quarter dropped 21 per cent year on year, a survey from Begbies Traynor suggests.

The insolvency specialist's quarterly Red Flag Alert statistics show the fall is in line with a drop of 22 per cent UK wide.

In Scotland, there were 257 companies reported to be in critical financial distress in the third quarter compared with 327 for the same period a year ago.

Critical distress is defined as firms subject to County Court Judgements of more than £5,000, winding-up petitions or entering into Corporate Voluntary Arrangements.

There has also been a five per cent fall in the monthly average figures for critically distressed companies in Scotland over the course of the first three quarters of 2012, now averaging 104 a month.

However Begbies added the statistics for ‘critical’ distress are typically at their lowest in the third quarter due to seasonal factors, including court holidays.

Ken Pattullo, who heads up Begbies Traynor in Scotland, said the headline reduction on distressed businesses in Scotland “mask some very concerning patterns” for SMEs, particularly in relation to their ability to access finance.

He said: “The fact is that changing corporate behaviour and a reduced level of litigation account for some of the reduction in distress levels rather than being an indication of overall improved economic conditions.

“We are now seeing the strongest businesses, often the larger ones, become stronger and unfortunately that is inadvertently impacting some of the smallest firms.

“This polarisation of fortunes is storing up problems as the SMEs that represent the backbone of the Scottish economy are bearing the brunt of the downturn, and many are now on the brink of failure.”

He added: “SMEs are suffering increasing distress with larger firms enjoying more access to credit and more growth.

“Some bigger businesses are enjoying the benefits of scale and cash positions to grow and thrive but some of this comes at the expense of smaller suppliers which are increasingly being pushed.”

Construction remains the most troubled sector in Scotland, accounting for 23 per cent share of all ‘critical’ distress cases, up from 19 per cent in the previous quarter.

Bars and restaurants accounted for a seven per cent share of critical instances, down from nine per cent in the previous quarter and there was a one per cent rise in critical distress in general retailing firms, accounting for six per cent of critical distress cases.

Pattullo added: “Without increasing credit to some of the struggling SMEs we are likely to see some of these firms finally fall over during the coming two quarters, and collectively some of these firms employ a great many people who are spending money as long as they have jobs.”